In re Woodward East Project, Inc.

• Decision Date: 09 May 1996
• Docket Number: Bankruptcy No. 85-04269-R.
• Citation: 195 BR 372
• Parties: In re WOODWARD EAST PROJECT, INC., Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

195 B.R. 372 (1996)

In re WOODWARD EAST PROJECT, INC., Debtor.

Bankruptcy No. 85-04269-R.

United States Bankruptcy Court, E.D. Michigan, Southern Division.

May 9, 1996.

COPYRIGHT MATERIAL OMITTED

Douglas Spicer, Ypsilanti, Michigan, for Debtor.

Charles Taunt, Charles J. Taunt & Associates, Birmingham, Michigan, for Trustee.

David Allard, Trustee, Allard & Fish, P.C., Detroit, Michigan.

MEMORANDUM OPINION AND ORDER

STEVEN W. RHODES, Chief Judge.

This matter is before the Court on remand from the District Court for the purpose of clarifying the reasons for denying in toto the application for fees and expenses of the debtor's attorney.¹ The fee application requests $78,840 in fees for 788.4 hours at $100 per hour plus expenses of $1,260.11.² Although the application does not explicitly so state, it is reasonably clear that the applicant seeks to have these fees awarded pursuant to 11 U.S.C. § 330(a)³ and paid by the estate pursuant to 11 U.S.C. § 503(b)(1)(A).

The Court denied the fee application to the extent it exceeded the amount of $1,174 already paid by the debtor's principal and to the extent it sought payment by the estate, for three reasons.⁴ First, the legal services of the debtor's counsel did not benefit the estate, with the possible exception of some matters that should reasonably have taken a relatively insignificant amount of time. Second, the applicant did not meet his burden of establishing a reasonable fee by proper documentation of the time spent. Third, the applicant's admitted representation of both the debtor and creditors in this case created an improper conflict of interest that fully justifies denying any fees from the estate.

I.

A.

11 U.S.C. § 503(b)(1)(A) provides for payment as an administrative expense any attorney fees that are "necessary" expenses of preserving the estate. Regardless of the chapter in Title 11 under which the petition is administered, In re Amberg, 148 B.R. 376 (Bankr.D.Conn.1992), counsel for the debtor can be awarded fees to be paid from the estate only to the extent that the attorney's services benefitted the estate by assisting the debtor in performing the debtor's obligations under the Bankruptcy Code. In re Reed, 890 F.2d 104 (8th Cir.1989); In re Alcala, 918 F.2d 99 (9th Cir.1990).⁵ Accordingly, fees are not awarded for services performed for the benefit of the debtor's principals. In re By-Rite Oil Co., 87 B.R. 905 (Bankr.E.D.Mich.1988). This basic and long-standing principle was announced by the Supreme Court in Randolph v. Scruggs, 190 U.S. 533, 539, 23 S.Ct. 710, 712-13, 47 L.Ed. 1165 (1903). As noted in 2 Collier on Bankruptcy ¶ 330.043, at 330-40 (Lawrence P. King ed., 15th ed. 1996):

The weight of authority under the Act was in favor of limiting compensability to services rendered in assisting debtors in performing their legal duties rather than exercising their legal privileges. Thus, one court stated:

The allowance to the bankrupt\'s attorney ordinarily covers only work done in promoting the administration of the estate and in assisting the bankrupt to perform his duties, such as drafting and filing the petition, drafting and filing the schedules, attendance at the first meeting, and other services in furtherance of the winding up of the proceedings.

The Code makes no change in this regard. Services of a debtor\'s attorney which were compensable under the Act, should be entitled to compensation under section 330.

In the context of a chapter 7 case, these principles were summarized in In re Dawson, 180 B.R. 478, 479 (Bankr.E.D.Tex.1994):

A debtor\'s attorney may only be paid from the estate if the services and expenses were actual and necessary to the preservation of the estate. 11 U.S.C. § 330(a). Unlike other chapters of the Bankruptcy Code, the role of a debtor\'s attorney in terms of providing services that benefit the estate is very limited because of the appointment of a trustee to administer the estate. Only the services that assist a debtor in performing the debtor\'s legal duties as opposed to exercising his legal privileges are compensable from the estate. In re Office Products of Am., Inc., 136 B.R. 964, 974 (Bankr. W.D.Tex.1992). Essentially, the services of a Chapter 7 debtor\'s attorney that benefit the estate are limited to "analyzing the debtor\'s financial condition, rendering advice and assistance to the debtor in determining whether to file a petition in bankruptcy, the actual preparation and filing of the petition and the required schedules and statements, and representing the debtor at the § 341 meeting of creditors." In re Saunders, 124 B.R. 234, 238-39 (Bankr. W.D.Tex.1991); Stewart v. Law Offices of Dennis Olson, 93 B.R. 91, 95 (N.D.Tex. 1988), aff\'d, 878 F.2d 1432 (5th Cir.1989). Any services rendered by a debtor\'s attorney in a Chapter 7 case that were above and beyond those associated with the legal duties of the debtor "are not `necessary\' to the administration of the estate within the meaning of the statute and should therefore not be compensable." Office Products of Am., Inc., 136 B.R. at 974.

The specific duties of the debtor in a chapter 7 case, in aid of which the services performed by the debtor's counsel can be compensated, were summarized in In re Taylor, 66 B.R. 390, 395 (Bankr.W.D.Pa.1986):

Bankruptcy Code section 521 and Bankruptcy Rule 4002 outline the duties of the debtor. Those duties include:

1) Filing of the debtor\'s Schedules of assets and liabilities, list of creditors, and statement of financial affairs;

2) Filing a statement of intention to claim exemptions or reaffirm debts;

3) Cooperate with the Trustee, by delivering all property of the estate and all of the debtor\'s records to the Trustee, to enable him to administer the estate;

4) Attend and submit to an examination (First Meeting of Creditors);

5) Attend any hearings on objections to discharge or dischargeability; and

6) Attend the discharge hearing.

See also, In re Olen, 15 B.R. 750 (Bankr. E.D.Mich.1981).

Moreover, numerous decisions have refused to award fees to debtor's counsel in chapter 7 cases where the services actually opposed, impeded and hindered the trustee's administration of the estate. See, e.g., In re Sounds Dist. Corp., 122 B.R. 952 (Bankr. W.D.Pa.1992); In re Alcala, cited above; In re Sandra Cotton, Inc., 91 B.R. 657 (W.D.N.Y.1988); In re J.V. Knitting Serv., Inc., 22 B.R. 543 (Bankr.S.D.Fla.1982).

Finally, the award of fees is addressed to the discretion of the Court, and the Court must use the lodestar analysis to determine a reasonable fee. In re Boddy, 950 F.2d 334, 336-37 (6th Cir.1991). The burden of proof is upon the applicant to justify the requested fees. In re Hamilton Hardware Co., Inc., 11 B.R. 326 (Bankr. E.D.Mich.1981); In re Vogue, 92 B.R. 717 (Bankr.E.D.Mich.1988); In re By-Rite Oil Co., cited above. The Court "will not indulge in extensive labor and guesswork to justify a fee for an attorney who has not done so himself." In re Taylor, 66 B.R. at 393.

B.

Paragraph D of the fee application under consideration alleges the following benefit from the services of the debtor's attorney:

Benefits conferred on bankruptcy estate: Prevented takeover of 445 E. Fisher Freeway by trustee who allowed furnace to crack on his watch, entered into agreement with MichCon beyond the scope of the court\'s jurisdiction to approve allowing MichCon to defy local health and safety regulations in shutting off the gas, sought to have MichCon pay the tenants to move out of 445 E. Fisher Freeway, and in general, did not manage the estate with theb sic best interests of the creditors or the tenants in mind, but rather, tried to loot it for the sole benefit of the Taunt firm.

A review of the time sheets and the record of this case fully supports that summary. On that basis, this Court held initially that "vast majority of work that was performed in this case was not for the benefit of the estate. . . ." (Tr. p. 10, Hearing on Motion for Attorney Fees, August 2, 1993). That finding was affirmed on appeal to the district court.

Under the cases cited above, the issue is what services were performed by debtor's counsel in aid of the debtor's duties under the Bankruptcy Code. These cases suggest that in a chapter 7 case such services normally consists of: (a) preparing the schedules, statement of financial affairs and list of creditors; (b) attending the first meeting of creditors; and (c) cooperating with the trustee in administering the case.

This case was commenced by an involuntary petition which the debtor contested. Services performed in contesting the petition were clearly for the sole benefit of the debtor and its principals and did not aid in the administration of the estate. See Randolph v. Scruggs, 190 U.S. at 539, 23 S.Ct. at 712-13. After the order for relief was entered on February 20, 1986, the schedules and statement of affairs were filed on April 18, 1986, and a meeting of creditors was held on May 15, 1986. The Court must conclude that debtor's counsel would normally be entitled to compensation for those services in a chapter 7 case, to the extent properly documented. However, the record and fee application itself clearly establish that all of the other extensive services performed by the debtor's counsel were for the benefit of others and indeed opposed, impeded and hindered the trustee's administration of the estate.

As noted above, the burden is not upon the court to justify a fee for debtor's counsel. However, this Court has thoroughly examined counsel's time sheets and has found the following entries reflecting the work on the schedules: April 17, 1986 — 3 hours and 11 minutes; April 18, 1986 — 10 hours and 54 minutes. The time sheets also reflect that on May 15, 1986, debtor's counsel spent 2 hours and 20 minutes attending the meeting of creditors. This is a total of 16 hours and 25 minutes.

This does not necessarily mean that counsel is entitled to be compensated for 16 hours and 25 minutes...